8/29/2015

Headline Aug 29, 2015 / ''' ECONOMICS OF THE FEARSOME '''

''' ECONOMICS OF THE FEARSOME '''

GREECE -would tempting many fates in the years ahead. In perspective, this is how one very critical fate emerged.

For countries that have their own currency, a Greece like nightmare would mean, printing more money to stimulate the economy. But by adopting the euro, Greece had ceded the right to print money to European Central Bank.

Which was then forced to offer Greece a series of bailouts. Along with International Monetary Fund and the E.U., the Central Bank provided emergency loans to prevent Greece from falling into bankruptcy in 2010-

And to keep Greek banks from running out of cash and collapsing the following year. But the rescue from these institutions, which are collectively known as the troika, came with strict conditions: The Greek government would have to slash spending, raise taxes and impose massive layoffs in the public sector.

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CHINA IS EXPORTING something brand new to the world economy :.... Fear!

Global investors are quaking over the prospect of a devastating slump in the world's second biggest economy.

And they are fasting losing confidence that- China's policymakers, seemingly so sure-footed in the past, know how solve the problem.

The worst-case scenario is that a collapsing Chinese economy would derail many, many other around the world -from emerging markets in Chile, and Indonesia and Pakistan to industrial powers:

Such as the United States, the European Union and Japan. The free-fall in the stock markets, in the words of David Kelly, chief global strategist at JP Morgan Funds is ''Made in China''.

This year, the International Monetary Fund expects China's economy to grow 6.8 percent, which by the way, would be its weakest pace since 1990.

China, which was posting double digital growth in the mid-2000s, is trying to engineer a daunting transition -from overheated growth fuelled by exports and some often-wasted investment to slower growth built on consumer spending.

Official numbers show the Chinese economy grow 7 per cent from January through March from a year earlier. Yet there's a growing suspicion that Beijing's statistics are failing to capture the extent of the slowdown.

''Everyone felt that they could slowdown to about 7pc [annual growth] and that wouldn't be the end of the world.'' says Sung Won Sohn, economist at California State University Channel Islands. ''It looks like it's slowing down even beyond that''.

Big American companies such as Caterpillar and Chevron have acknowledged the damage that China's troubles are causing them. China's troubles have have also depressed technology stocks.

Shares in Apple, which has enjoyed strong sales of iPhones and other products in China, are down nearly 20pc the past five weeks.

On the surface, at least, the panic on Wall Street might seem overdone. After all, a 1pcs annual drop in China's economy translates into just 0.2pc pinch in America's economy, according to Mark Zandi, chief economost at Moody's Analytics.

Likewise, a China pullback of that size would slow annual growth in the 19-country eurozone by only 0.10pc to 0.15pc, according to UniCredit Research. That sort of slowdown is hardly catastrophic.

So why the hysteria?

For one thing, China's troubles raise doubts about whether its policymakers have the tools to keep their economy growing at a healthy pace -something that's been a reassuring constant for more than two decades.

Recently Sohn says, '' The Chinese government has not been able to control its economy and the financial market.''

Beijing had cushioned its economy during the 2008-9 financial crisis by ordering state-owned banks to ply companies with loans to build roads, houses and factories.

The result : an escalation of corporate debt that's now feeding the problems.

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